Japanese Economy Evens Out
Japan released its trade deficit data overnight, which shows that – although imports are continuing to contract and exports to expand – the global slowdown is taking its toll, and devaluating the Yen has apparently eased the nation’s situation only temporarily. Annualized export growth is down to 2.4%, compared to 3.5% expected figure and the previous reading of 8%. Imports dropped from -8.7% to -4.2% - both figures reflecting the situation in China, Australia and other global trading partners. With USDJPY currently trading sideways, the Bank of Japan may have to reconsider policy in order to meet target inflation levels.
US oil production may once again be overtaking demand, according to American Petroleum Institute’s crude inventory stocks data. Following the announcement, energy prices rallied until traders selling generated an immediate retracement. The 2.9 million barrel draw was dramatically less than last week’s 6.7 million, perhaps also due to the rising efficiency of shale producers struggling to compete with dropping crude prices – evidenced by decreasing rig counts but increasing output. Meanwhile, investors await the outcome of Iranian nuclear talks, scheduled to end in two weeks’ time unless extended. This could cause a major shift in the fundamentals of the market and force prices lower as a result.
Yesterday’s housing figures reveal a contradiction between the number of building permits issued and the number of housing starts recorded – an indication of uneven economic recovery. 1.275 million building permits represents an 8 year high and an 11.8% increase over the previous month. However, the regional count shows the number leveling out throughout the nation, except for the Northeast, where the annualized figure currently stands at 165.8% growth. Last time the figure approached this level was the year before the current financial crisis. Moreover, as rental replaces ownership as a nationwide trend, builders have been requesting more permits for multi-family projects. Following last weekend’s bearishly biased reopening shares have been trending higher in a late session rally.
The Franc was solidly bid this morning as fears of Greece contagion see risk-aversion assets pop on the uncertainty. The GBPCHF pulled back sharply to the downside on the selloff in the pair with prices falling to the bottom of the upward trending channel pattern setting up for approximately a week. The pattern has a bullish bias with ideal positions taken at the bottom channel line targeting the upper channel line as an exit. UK data is expected remain unchanged with unemployment steady at 5.50% and the Monetary Policy Committee unanimous in its decision-making. However, the risk of the pattern breaking down comes down to any worsening of the Greek outlook and imposition of capital controls if no deal is reached. Nevertheless, shorting from the upper channel line to target the lower channel line increases the risks while narrowing the potential reward from such a trade.